We have begun recommending that investors use recent equity market weakness to rebalance portfolios and lift international equity allocations. We have further suggested that investors prioritize shifting allocations toward international equity strategies with a higher allocation to Japan.
The recent recession has certainly had a major impact on the financial condition of most municipalities. While we believe this may lead to an increase in defaults over the next few years, we do not anticipate widespread defaults or major losses at the bondholder level. Any defaults that do occur will likely be well telegraphed and identifiable through fundamental credit research.
Expected changes in gift, estate, and generation-skipping taxes after 2012 has led many families and advisors to conclude that 2011-2012 presents a valuable, two-year window of opportunity to update estate plans. However, certain developments suggest the best results may be obtained by acting sooner rather than later.
When the Fed ceases its massive buy program in July, it will be a de facto increase in interest rates. Who is going to step in and fill the void? The conclusion of QE2 is a well known fact, but are the consequences well understood and is this the only market dynamic that will push rates higher?
We continue to recommend that investors focus on high-quality general obligation and essential services municipal bonds as the core of their bond portfolios. We also continue to recommend that investors maintain shorter-than-benchmark durations in order to dampen the risks of rising interest rates.
Index-based global portfolios may offer a more efficient way to capture exposure to developed and emerging markets than having separate portfolios for each of the two. By consolidating these two market segments into a single integrated portfolio, investors benefit from lower portfolio turnover and reduced operating costs.
The increase in the lifetime gifting limit, combined with the temporary nature of the current estate and gift tax law, open a window of opportunity for wealth transfer. Leveraged gifts can safeguard the benefits of this situation by compressing the value of the gift for tax purposes while amplifying the impact of the wealth transfer.
Parents who are concerned about family harmony after their deaths are wise to address the issues of estate equalization as a key element of their estate and business planning. Most of the problems that would create disharmony among their children can be handled with careful thought and with wills, trusts and business agreements that clearly dictate the legacy plan.
The catastrophic earthquakes/tsunamis in Japan, and the uprisings in the Middle East and North Africa (MENA) understandably dominate today’s news. Japan is clearly an enormous human tragedy, as well as one with economic consequences. The events in both of these regions have created significant global uncertainty affecting everything from gasoline prices and food supply, to automobile production and power generation. These events serve to remind us that our growing global economy is heavily dependent on evermore expensive and vulnerable sources of fuel and power.
The time to consider the reinvestment risk of selling a family business is before, not after, the sale. A reinvention plan can help by taking into consideration the remaining ties to the business, estate and tax planning issues related to the sale, and personal reinvention for family members as they continue on without the business.